How To Trade In Financial Spread Betting

How To Trade In Financial Spread Betting

By now you should understand the difference between trading and investing, if not, please go back and check the article that is on the site. The end result of both is much the same, but trading is more active and usually is more speculative and short term, where as investing tends to have a known outcome, over a particular period of set time – such as pensions for example are a form of investing, where as trading is something in which we are actively involved in here. Trading then you have to work at, investing is more passive by nature and usually undertaken for you by a financial advisor or your bank for example. However, those of you who know me well, will know my feelings towards both.

There are quite a few things that I need to cover in this course, certainly in the foundation 101 course, that will bring you up to speed with regards some basics on trading, how to trade, where to trade and so on. However, one thing I do want to make very clear; completing the foundation 101 course, will not make you a trader and nor should you even think of trading at this point. The purpose of this foundation course, is to bring you up to speed, to get your knowledge and understand of the very basics where it needs to be. If I were to go straight into the training course, say launching you straight into 201 and you were new to trading, chances are that you would turn off very quickly and not bother coming back. In fact, many trading courses tend to forget that some people have zero knowledge of the markets and trading and need that hand up, this is your hand up, if you’ve never, ever traded before.

The 101 course will cover basics, you will understand some terms, some methods and you will know where to trade, how to open a demo account and where and how to use that demo account. This module we are going to discuss how you open trades in a spread betting account, it’s pretty straight forward. Do not concern yourself with some of the terminology, as having been writing about trading for many years now, there will be times when I slip and the odd word will sneak in that you may not understand. If there is anything that you are unsure of, in any of the modules, don’t forget that you can get support to the modules and module updates, simply by registering on the right of this page. Once registered using the box on the right of this page, I will give you access to a unique support tool, where you can contact me.

The Very Basics

OK, let’s start and get the ball rolling. The basics of any trade is to make money, that’s a given and I am sure that you understood that already. However the basics of a trader, is to make money, overall. Through the use of money management (covered much later), a trader understands that not all trades will make money. In fact, this is your first and probably not the only confusing statement you are about to hear; traders usually have more losing trades than winning trades, but the profit from those winning trades far exceeds the loss made on the larger number of losing trades. Sounds a bit crazy, but logically it makes sense and is how every successful trader trades. They know and understand that not every trade they make will make them money. Obviously they don’t go straight into thinking this, but they understand it. The first thing that you need to understand with trading, is that it’s a business. You are not expecting to profit from every trade, that’s simply impossible. Those that treat trading as a business, fare better and do better, because they understand that they may have a run on trades that do not make them any money, and because their money management is spot on, they haven’t lost a great deal. Then when they do make a trade that moves into profit, they start to manage that trade (again something we will talk about in later modules) and move that trade into further greater profits. It is not uncommon for many traders  to have one profitable trade, counter any loss made from a series of losing trades and still end up with a good amount of profit, even accounting for the losing trades.

This then tends to mark out new inexperienced trader as opposed to that of someone with experience. A new trader, will immediately, after two or three losing trades, usually give up. Part of that giving up, is that they have over traded, more on that in a second, and secondly, they didn’t manage the loss correctly and finally didn’t understand that trading is a long game. Yes there are times, even for new traders, when they will make profits on a few starting trades, but because of their inexperience, I can pretty much guarantee that those profits will be eaten up very quickly.

Now, I mentioned over trading. Over trading is when someone exceeds the amount they are trading on any one single trade. A golden rule, over all, is that you should not exceed 10% of your available balance on all your trades, let alone one trade. As you become more experienced, you can have more than a single trade open, but at the beginning, you should only have one trade and that single trade should not, ever, no matter how much money you have, exceed 10% of your available balance on your account. All of this will make sense when I talk about money management in later modules.

What is alarming, is that new traders will over trade, I will talk about the problems that new traders make in another module in the foundation course 101, so that you can keep it handy to make sure that you won’t be making the same mistakes.

Previously, I was talking about managing loss. This is all part of managing your trade and part of your analysis. When you make the trade, you will know the following;

1 – your entry

2 – your exit

3 – your expected profit target

4 – your accepted loss

Now managing loss is all part of what you would have understood clearly before you made the trade. You will understand those four aspects clearly, way before you’ve made the trade. When and you will, make a loss on any trade, you would have understood clearly what that loss would have been.

What a new trader tends to do, other than not even understand those four aspects of making and managing a trade and those four points are the bare bones, we will go into further details in other modules in 202, 303 and Pro. When a new trader starts to lose money, they look at the trade, not even knowing when they will be leaving it or should be leaving it. The most common error, is letting the loss carry on, in the hope of it turning around. I will explain the logic, or lack of, behind that thinking in another module.

Now you know about the very basics of managing a trade and what traders expect and understand before they have even made a trade, let’s take a look at some of the very basics of trading and I would also suggest that before you go further that you go to the Articles section of this website and look under ‘Financial Spread Betting’ and read all of those articles.  Then return here.

OK, so did you read them? I hope so.

Long & Short of it!

There are three market conditions, mainly.

Bull(ish), Bear(ish) and Consolidation. These may sound somewhat odd, and more so, they have correlating trading terms associated with them as follows; bearish – Long, Bearish – Short.

Let’s explain these in a bit more detail, but before I do you need to understand the following and you should understand it already, especially if you’ve read the articles I told you to read earlier. Basically, you can profit in any market condition, whether the market is Bearish, or Bullish. Bull markets are where they are positive and growing and going up in value. Why a Bull, well it’s because Bulls attack upwards. Bear markets are when the market is going down in value and are negative. Why a bear, well bears tend to attack downwards on their prey. What many people do not understand, although the last few years there has been a lot of news regarding it, is that you can profit obviously when the market is bullish, going up in value, but you can also profit too, when it’s bearish and going down.

If you are trading with a view of the market being Bullish, you would be said to be ‘Going Long’ on the market. Your view point is one of that which is going up in value overall.

If you are trading with a view on the market going down in value, being bearish, then you be said to be ‘Going Short’ on the market.

Profit When Markets Fall?

Surely that can’t be right, that you can profit when the market is falling in value. It does seem very strange doesn’t it, that someone can actually profit, from something that is falling in value. After all, basic math tells us, even in primary school, that anything falling in value, simply can’t make you money, especially if you bought it at a higher price.

You know what, they are right, to a degree, but not 100% when you are referring to the financial markets. More so when we are talking about derivatives. What happens here, is that for every bullish trade, there is an equal bearish trade. For each time someone goes long in the market, there is someone else going short on the very same. Now in the true derivates market, then trades are balanced out through the markets through the globe and because it’s all compterised , it happens massively quickly, almost, amazingly in Forex, instantly. In Financial Spread Betting, we are trading against the broker, the spread betting company. Remember, we are not actually trading anything real or anything that has any intrinsic value. We are simply opening a trade against our broker, who gives us a price – that price happens to be a living, breathing fluctuating market. Therefore, when we go short, the broker will, if there are a large number of being going short, the broker will ‘hedge’ against that trade. In other words, they will do a converse trade elsewhere, of there own, in the real market, to counter any loss they could expect to make. It’s all one massive money game really.

Really then, it doesn’t matter if you are going long or short on the market, you can profit just the same. However, just a quick tip, is that falling markets do so quicker than a market that is going up in value. You can therefore, make money quicker from a falling market, than you could say going long with the expectation of it going up in value. For a market to fall, requires no energy or production, or positive view. For example, markets grow when production increases (on a basic level) and more of XYZ is being made or produced. It requires energy, it needs growth, it’s the whole basis for anything to increase in value; demand, production, profit and more… you understand where I am coming from. Where as for something to fall in value requires no energy, nothing, it just needs to simply fall. It doesn’t take any energy for something to be negative or to stop being productive, it just stops, but the market for that can keep going down. It’s a mental perspective we have on things, which of course is based in fact, but in the markets, that mental aspect rules true too. However, we can profit regardless of which direction the market is going up or down in. Later in the course, I will be explaining how you can profit when the market isn’t doing much at all and is trading sideways. Usually this is referred to as consolidation, but there are different degrees of that and you can still make money from it.

Conclusion

Now you should understand what traders look for, those four aspects of trading and why they are so important, as it give the trader their targets and expected loss and there would not be any surprises. That traders understand that they will have a far greater number of trades that lose money, but their overall winning trades will far exceed any loss incurred from the losing trades. That a professional trader knows that it’s a business and treats a winning trade and a losing trade the same mentally and trading can be profitable, providing it’s managed right, treated with the right mental mindset and they keep to the rules about trading their available balance/funds. Regardless of what the market is doing, they are in positions to profit, long, short or sideways.

  Stage 1

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